Bailment Explained

What is a “bailment”?

A bailment is a situation where the owner of personal property gives the property to another person to hold or to use in a specific manner. The owner of the property is called the “bailor” and the person receiving the property is called the “bailee”. A bailment can be express (pursuant to agreement by the bailor and bailee) or implied (simply a result of the parties’ conduct).

• Example: To illustrate an express bailment, Alex gives his car to Brandi to sell. Brandi will receive a commission for selling the car. Until the car is sold, the situation is a bailment. Brandi is the bailee holding the property with the specific purpose of selling it for Alex. Another common form of express bailment is shipping a package through the public or private delivery service. The package is held by the common carrier is a bailment.

• Example: To illustrate an implied bailment, Gary accidentally leaves his computer at Dina’s house. Dina leaves Gary a message to let him know he left it and that she will hold on to it until he can pick it up. In this situation, an implied bailment is created. Dina is holding the computer for Gary with the expectation that she return it whenever he comes to get it.

• Discussion: What do you think about the prospect of creating a bailment by accident? Does it matter whether the parties realize that they are part of a legal relationship? Should the bailor and bailee know that the other exists?

• Practice Question: Rhonda is leaving a restaurant and picks up her coat from the rack at the door. When she reaches her home, she realizes that she has picked up someone else’s coat. Rhonda decides to return the coat to the restaurant, but she cannot do so until the following day. What is Rhonda’s legal status while in possessions of someone else’s coat?

What is a “unilateral benefit bailment” and “mutual benefit bailment”?

A bailment can be made to benefit either party or both parties.

• Unilateral Benefit Bailment – A unilateral benefit bailment is a situation where either the bailor or the bailee receives a benefit from the bailment, while the other party does not. This situation may arise as a gift or favor by one party to the other.

⁃ Example: Sam agrees to look after Judy’s car while she is on vacation. This is a unilateral benefit bailment in favor of Judy (the bailor). If Judy later loans her car to Sam for him to drive while his car is being repaired, this is a unilateral benefit bailment in favor of Sam (the bailee).

• Mutual Benefit Bailment – A mutual-benefit bailment provides a benefit to the bailor and bailee. Generally, a mutual benefit bailment is pursuant to an enforceable contract, as there is an exchange of value that is the impetus of the relationship.

⁃ Example: Ralph agrees to fix Laura’s chainsaw if he can use it to cut up some trees that fell on his property. This is an enforceable contract. Since the contract involves Ralph holding Sandra’s property and returning it at some point in the future, the relationship constitutes a mutual-benefit bailment. Any situation where the bailee is paid to hold or dispose of the property is a mutual-benefit bailment. In business, most bailments are mutual benefit.

Rights – The bailor and bailee have specific rights in the bailment relationship.

• Bailor Rights – The bailor generally has the right to receive return of the property (or any proceeds derived from disposing of the property).

• Bailee Rights – The bailee generally has the right to possess the bailed item, the right to use it (unless otherwise limited in the bailment agreement), the right of compensation (if provided for in the bailment agreement), and may have the right to limited personal liability or indemnification by the bailor for potential liability arising from the bailee carrying out her duties.

Duties – The bailor and bailee owe specific duties to each other in the bailment relationship.

• Bailor Duties – In a unilateral-benefit bailment, the bailor must reveal any defects in the bailed item. She warrants that there are no defects in the bailed object that could have been discovered through reasonable inspection.

• Bailee Duties – Bailee has an absolute duty to return the object to the bailor or to dispose of it as the bailor directs. The bailee is potentially liable to the bailor for failing to do so.

Standard of Care in Duties – The bailor and bailee owe duties of care to each other in the bailment relationship.

• Bailor – The bailor must take reasonable care to protect the bailee from known risks in the bailment relationship.

• Bailee – The bailee’s duty of care in the bailment relationship depends upon the nature of the bailment. In a mutual benefit bailment, the bailee generally must exercise reasonable care in taking care of the bailed property. If the bailment is a unilateral benefit for the bailee, the bailee owes a higher standard of care in carrying out her bailment duties. The standard of care is lower if the bailment relationship is a unilateral benefit for the bailor. This could mean that the bailee avoid recklessness in carrying out her duties.

Numerous special bailment relationships exist that may entail higher levels of care for the bailee. For example, some jurisdiction make common carriers strictly liable for any damages to the bailed property (such as a package shipped with a common carrier). The bailee may have limited rights to disclaim some level of liability. Further, some jurisdictions make hotels and motels strictly liable for losses to property held as part of the business-client relationship (such as goods stolen from the hotel room).

• Discussion: Do you believe that there should be a difference in duties between unilateral and mutual benefit bailments? Should the duties be stronger for the bailor or bailee in either situation? Why or why not?

• Practice Question: Ralph asks Arnold to watch his car while he is on vacation. Arnold agrees under the condition that he get to drive it whenever he wants. Ralph agrees and hands over the keys before heading on vacation. Arnold drives Ralph’s car to a bar. He drinks too much and has to take a taxi home. The next day he returns and someone has vandalized Ralph’s car. Is Arnold potentially liable in this situation?